Ripken Baseball Sex Discrimination Case - Arbitration Clause Not Enforceable

In a recent decision, Raglani v. Ripken Professional Baseball, the United States District Court for the District of Maryland denied an employer’s motion to dismiss or stay and compel arbitration in a gender discrimination action brought by a former employee. The decision rested on two grounds: 1) there was insufficient consideration for agreement, i.e., a mutual exchange of promises to arbitrate; 2) the requirement of a neutral forum was not met.

Briefly, the case involved an action under Title VII of the Civil Rights Act of 1964 and Maryland state law, alleging that the plaintiff was unfairly terminated for engaging in a romantic relationship with a subordinate, when, despite a company policy forbidding such relationships, she alleges several of her male counterparts engaged in sexual relations with their subordinates and never were reprimanded. The plaintiff’s action also alleged negligence, wrongful discharge and breach of contract.

Upon her hiring, the plaintiff was required to sign a Problem Support Policy Acknowledgement and Agreement (“PSP”), which stated it was “‘a valid and binding legal obligation … in consideration of [her] hiring for employment or [her] continued employment … .’” The PSP stated it was a “procedure” to be used by “‘[a]nyone who feels they have a problem that requires management’s attention.’” The court provided a pointed criticism of what it characterized as an unbalanced agreement: “The PSP is entirely one-directional, binding employees to dispute resolution procedures …. but silent on [the employer’s] obligations to do anything other than “facilitate” this process in the event an employee submits a ‘problem’ to management.”

The “binding arbitration” provision in the company’s PSP stated:

Human Resources will provide a list of qualified Arbitrators upon a formal request to move to this step. … The rules of the arbitration will be subject to the Federal Arbitration Act and agreed to by both parties. … [Employer] will assume responsibility for the costs of the Arbitrator. If the [employee] decides to have their attorney present, the cost of that attorney will be the responsibility of the [employee]. After the meeting, the Arbitrator will submit a decision in writing and this decision shall be final.

The court found the arbitration provision defective and unenforceable because by giving the employer exclusive control over the list of arbitrators, it denied one party (the employee) access to a neutral, arbitral forum. The court also stated that the arbitration provision was too vague with regard to establishing rules by which arbitration would be conducted. (The provision does state that arbitration rules would be subject to the Federal Arbitration Act, but the FAA does not establish rules.)

While the court addressed the potential for bias where one party has the authority to limit the arbitrator selection process, something not discussed is the exponential bias one might imply from the fact that the employer both circumscribed arbitrator selection and assumed sole responsibility for paying the arbitrator. Given this pairing of control and monetary power, the arbitrator could be viewed as the employer’s “hired gun.”

A link to the decision is here:

http://www.mdd.uscourts.gov/Opinions/Opinions/Raglani%2016%20April%202013.pdf

New Fourth Circuit Opinion on Arbitration -- Appeal of Arbitrability Decision Divests Trial Court of Jurisdiction

I have addressed arbitration issues many times before on this Business Law Blog. They are important because so many agreements now contain mandatory arbitration clauses. On February 10, 2011, the United States Court of Appeals for the Fourth Circuit issued an opinion in the case of Levin v. Alms and Associates, Inc. A copy of the decision can be found here. In this case, the appellate court held that when a trial court order regarding arbitrability of a dispute was appealed, the trial court is divested of jurisdiction and cannot continue on to handle the case until the appeal is resolved. The appellate court reversed the trial court which had allowed what it believed was the “non-arbitrable” portion of the case to go forward while the appeal was pending.

The appellate court also went on to decide that the trial court was wrong on the merits. That is, the appellate court held that the trial court was wrong to decide that certain claims were not subject to arbitration.

Before including an arbitration provision in your business agreements, you should be sure to consult with counsel to determine whether such a provision is in your interest and to discuss the scope and effect of such a provision.

More Arbitration Related Case Law - Arbitration Clause Not Enforceable

Another recent case, Henry v. Gateway, Inc., et. al., (No. 0537, September Term 2008, Issued August 31, 2009), shows that binding arbitration clauses are not always binding in Maryland. The case arose from plaintiff-appellant’s purchase of a Gateway computer at a local Best Buy retail store, and the subsequent malfunctioning of said computer. The computer came with a standard One Year Limited Warranty, the terms of which the consumer was required to agree to in order to render the computer operational. One of those terms was submission of all disputes to binding arbitration, which would be governed by the Federal Arbitration Act, 9 U.S.C. § 1, et. seq. Disregarding the binding arbitration clause, plaintiff-appellant elected to file a complaint in The Circuit Court for St. Mary’s County, alleging three state law claims: 1) breach of express warranty; 2) breach of implied warranty; and 3) violation of the Maryland Consumer Protection law, Md. Code (1975, 2005 Repl. Vol.), Commercial Law Article §§13-101 et seq. In addition, there was one federal claim: violation of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301 et. seq. The Circuit Court for St. Mary’s County ruled in favor of defendant-appellee, dismissing plaintiff-appellant’s state law claims (with prejudice) and ordering the arbitration of said claims.

On appeal, the Court of Special Appeals of Maryland ruled that the binding arbitration clause in the consumer contract was unenforceable given a 2007 ruling by the Court of Appeals of Maryland, Koons Ford of Baltimore, Inc. v. Lobach, 398 Md. 38 (2007). In Koons Ford, the Court of Appeals held that the Magnuson-Moss Warranty Act supersedes the Federal Arbitration Act, so that a litigant advancing a federal warranty claim cannot be forced to resolve his or her claim through binding arbitration.

Further, the contract in Henry had a South Dakota choice-of-law designation. The choice-of-law question was whether, in the absence of a controlling decision by the U.S. Supreme Court, and given the divided nature of the relevant federal precedent, a Maryland Court is bound to apply a contractual choice-of-law rule that has the effect of interpreting federal law in a way inconsistent with a decision of the Court of Appeals of Maryland. The Court of Special Appeals answered with a resounding no, finding that it would be contrary to the fundamental policy of the state (as embodied in Article 2 of the Maryland Declaration of Rights, and a 1979 case, Pope v. State) for a Maryland court to apply a choice-of-law provision that conflicts with the state’s highest court’s interpretation of federal law.

The Circuit Court for St. Mary’s County ruling was reversed and the case was remanded to that court for further proceedings. The Court of Special Appeals ordered that all costs be covered by defendant-appellant.

It just goes to show that what is written in a contract is not always an accurate reflection of a consumer’s actual rights and/or potential recourse.